The national government and regional governments held a closed meeting yesterday. Six People's Party regional governments, Castille and Leon and Extremadura among them, did not support the government's deficit requirements. After Rajoy announced national and municipal spending cutbacks on Wednesday, now the regional governments will have to trim some fat. And there's a lot of it to trim.
Regional governments were principally responsible for Spain going over budget in 2011, and numerous doubts still remain based on their spending for the current fiscal year. They are experiencing serious liquidity problems, which forced the national government to transfer funds to the regions in Q1. During the crisis, they have doubled their debt load. The majority have watched their bonds drop to junk status, and they still haven't cut spending enough.
Facing several regional governments' protest of the national government's decision to raise the VAT and lowering the 2012 deficit objective by one percentage point, Minister of Finance Montoro proved stalwart. It's good that he applied the European formula to the regional government: those receiving aid receive restrictions, and they all need state backing in order to get financing becuase markets are closed to most of them. Further, Montoro reprimanded eight regional governments for not meeting their deficit goals for this year, which was 1.5% of GDP.
The regional governments are still afraid of the decisions that Spain still has to make: closing public companies, television stations first of all; cutting government payroll; doing away with redundancy in the civil service. Everyone should focus their efforts on these objectives.
